When Does Savings Transform Into Investment

Saving money is important, no matter what your financial situation is. Savings functions as both your foundation and your cushion should you fall. You never know when you could possibly need some extra money in your weekly or monthly budget, such as an abnormally high utility bill or unforeseen car repair.

Savings are great to a certain extent, but if it gets to a point when you have a pile of money gathering dust in the corner of your savings account, it’s time to start considering investing your funds. You can transform that extra money sitting in savings into a profitable investment that could provide significant growth and returns for you in the future.

What’s The Difference Between Savings and Investment?

Saving is low-risk to risk-free. It’s when you take some money and set it aside in a commercial bank’s account or low-risk security such as a CD for the long run. You can easily access the funds if you need it, but most often it sits in your account, gathering very little interest as the time passes.

An investment is when you take the money you had set aside in savings and put it towards some sort of asset which you view as either increasing in value or able to provide residual income (such as bond payments). You can invest in almost anything, from the stock market and real estate to fine art and restaurants.

How Do I Know When I’m Ready To Invest?

You know you’re ready to invest when you can look forward and feel confident that you are able to pay all of your likely expenses and still have money to spare. That money left over is the money you will invest. Project your next six months of bills and make sure your savings can safely cover it – the last thing you want is to invest funds which you will ultimately need to pay living expenses. Your money doesn’t do much good, even gaining significant interest, while you’re sitting at home with your power and cell phone shut off.

What Is A Smart Investment?

Do your research before throwing your money into something. The ASX can be a good investment opportunity, but stocks often have lots of volatility meaning increased risk that you could lose a significant portion of your investment. Because of this, it is vital that you fully educate yourself and research any potential securities that you consider purchasing.

Investing in the stock market can be done in a number of different ways. Long-term investors purchase shares of companies which they see having good growth potential over a number of years. Short-term investors are more likely to buy and sell shares often, and aim to gain profits by taking advance of short trends in the market.

Another, safer alternative are Australian Government Bonds (AGBs). AGBs provide modest returns while being backed fully by the government. The risk of losing money through default is severely less likely when dealing with the national government than when investing your money with private companies. While government bonds do not generally provide the returns available through investment in stocks, your money is sure to gather more interest than it would simply sitting in your savings account.

Once you’ve picked a suitable vessel to use to invest your funds, you can sit back and keep saving money while you watch your returns grow. The best way to grow long term wealth is to ensure that you always have a good amount of money available in savings for living expenses, and then invest the rest which you save. Over time, your continued investments will amount to a very respectable investment portfolio.

James McDonnel writes for SwiftMoney which provides Instant Payday loans . James is a passionate full time finance blogger and loves writing on popular blogs like ecashloans.com.au and various other finance blogs. Check Google+ for more details about SwiftMoney